NISM Certifications Operations, Compliance and Risk Management Syllabus

Operations, Compliance and Risk Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Operations, Compliance and Risk Management in NISM Certifications, not a summary of it.

1. 1

   Securities Operations and Risk Management

   3 topics

   • Front, Middle, and Back Office Functions
     • Order management and execution
     • Risk monitoring and limits
     • Settlement and reconciliation
   • Client Onboarding and Account Opening
     • KYC documentation and in-person verification
     • Unique Client Code (UCC) mapping
     • Power of attorney and authorisations
   • Risk Management Systems
     • Pre-trade and post-trade risk checks
     • Margin collection and reporting
     • Default handling
2. 2

   Depository Operations

   3 topics

   • Depository Participant Functions
     • Account opening and maintenance
     • Dematerialisation and rematerialisation
     • Account closure and freezing
   • Transactions and Corporate Actions
     • Settlement instructions and transfers
     • Pledge and margin pledge
     • Dividends, bonus, and rights processing
   • Depository Regulations and Compliance
     • SEBI (Depositories and Participants) Regulations
     • Internal audit and inspection
3. 3

   Compliance and Internal Controls

   3 topics

   • Compliance Function in Intermediaries
     • Role of the compliance officer
     • Regulatory reporting obligations
     • Inspection and enforcement
   • Anti-Money Laundering Framework
     • PMLA obligations and FIU-IND reporting
     • Customer due diligence and risk categorisation
     • Record retention requirements
   • Code of Conduct and Ethics
     • Conflict of interest
     • Confidentiality and data protection

Operations, Compliance and Risk Management flashcards for NISM Certifications

25 of 51 cards from the Operations, Compliance and Risk Management deck — real questions with worked answers.

1. In a securities firm, what is the primary responsibility of the Front Office?

   The Front Office is client-facing and revenue-generating: it handles trading, sales, dealing, and relationship management, executing orders and dealing directly with clients.

2. What functions does the Middle Office perform in a securities firm?

   The Middle Office manages risk and control: risk management, compliance monitoring, trade validation, P&L calculation, and ensuring trades comply with limits and regulations. It sits between front and back office.

3. What are the core duties of the Back Office in a securities firm?

   The Back Office handles post-trade processing: trade confirmation, clearing, settlement, record-keeping, accounting, reconciliation, and reporting. It is non-client-facing and operational/support.

4. Why must front office and back office functions be segregated?

   Segregation of duties prevents fraud and error by ensuring the person who executes a trade does not also confirm, settle, or record it, creating independent checks and reducing operational risk.

5. What is the purpose of the client onboarding process?

   To establish the client relationship by verifying identity, assessing suitability and risk profile, completing KYC, and opening the trading/demat account in compliance with regulations before any transactions.

6. What is KYC and what are its core components?

   KYC (Know Your Customer) is the mandatory client identification process. Core components: customer identification (proof of identity and address), in-person verification (IPV), and ongoing due diligence/monitoring.

7. Which documents serve as Officially Valid Documents (OVDs) for KYC in India?

   Passport, driving licence, Voter ID card, PAN card, Aadhaar (with consent), and NREGA job card. PAN is mandatory for opening a securities/demat account.

8. What is In-Person Verification (IPV) in account opening?

   IPV is the mandatory step where the intermediary verifies the client's identity in person (or via approved video/e-KYC), confirming the applicant matches the submitted documents before account activation.

9. What is a KRA in the Indian securities market context?

   A KYC Registration Agency (KRA) is a SEBI-registered entity that maintains a centralized KYC records database, so a client KYC done once can be used across all SEBI-registered intermediaries.

10. What is the purpose of client categorization during onboarding?

    To classify clients by risk (e.g., low/medium/high risk) and type (individual, NRI, institutional, PEP), which determines the level of due diligence and ongoing monitoring required.

11. What is a Politically Exposed Person (PEP) and why does it matter for onboarding?

    A PEP is a person entrusted with prominent public functions (e.g., senior politicians, judges, military officers). They are higher risk for money laundering, requiring Enhanced Due Diligence (EDD) and senior management approval.

12. What is the role of a Risk Management System (RMS) in a brokerage?

    The RMS monitors and controls trading risk in real time by setting exposure limits, margin requirements, and position limits, and by blocking or squaring off trades that breach limits to protect the firm and clients.

13. What is margin in the context of broker risk management?

    Margin is the upfront collateral (cash or securities) a client must deposit to cover potential losses on positions, ensuring the client can meet obligations and reducing the broker's credit/default risk.

14. Define operational risk.

    Operational risk is the risk of loss from inadequate or failed internal processes, people, and systems, or from external events (e.g., fraud, system failure, human error, settlement failure).

15. What is market risk?

    Market risk is the risk of loss from adverse movements in market prices, such as equity prices, interest rates, exchange rates, or commodity prices.

16. What is credit (counterparty) risk?

    Credit risk is the risk that a counterparty fails to meet its financial obligations, such as a client defaulting on payment or delivery, causing loss to the firm.

17. What is liquidity risk?

    Liquidity risk is the risk of being unable to meet financial obligations when due, or being unable to buy/sell an asset quickly without significant price impact.

18. What is a margin call?

    A margin call is a demand from the broker for the client to deposit additional funds or securities when the account's margin falls below the required maintenance level due to losses.

19. What does 'square off' mean in risk management?

    Squaring off is closing out an open position (selling a long or buying back a short) - often forced by the broker's RMS when margin shortfalls or limit breaches occur to cap losses.

20. What is a depository and what does it do?

    A depository is an institution that holds securities in electronic (dematerialized) form and facilitates their transfer. In India the two depositories are NSDL and CDSL.

21. What is a Depository Participant (DP)?

    A DP is an agent of the depository (such as a bank, broker, or financial institution) that acts as the interface between the investor and the depository, offering demat account services to clients.

22. What are the main functions of a Depository Participant?

    Opening and maintaining demat accounts, dematerialization and rematerialization, facilitating transfers/settlements, crediting corporate action benefits, pledging securities, and providing account statements.

23. What is dematerialization?

    Dematerialization is the process of converting physical share certificates into electronic form held in a demat account, initiated by submitting a Dematerialization Request Form (DRF) to the DP.

24. What is rematerialization?

    Rematerialization is the reverse of dematerialization - converting electronic securities back into physical certificate form, initiated via a Rematerialization Request Form (RRF).

25. What is an ISIN?

    ISIN (International Securities Identification Number) is a unique 12-character alphanumeric code that identifies a specific security, used by depositories to standardize and track securities.

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